W.Va. budget faces $80 million shortfall

CHARLESTON, W.Va. -- Based on current revenue projections, legislators will need to cut spending by about $80 million in the state budget that begins next July, and that budget gap is projected to grow to $265 million for 2015-16, state Budget Office Director Mike McKown told legislators Monday.

"The way you do that is to cut budgets or to raise taxes, and there's no appetite to raise taxes," McKown told a legislative interim committee.

Until recently, the state's $4.1 billion general revenue budget -- revenue produced from state taxes -- had been growing at a rate of 3 to 4 percent a year, he said.

However, the state economy of late has been flat, primarily because of declining coal sales, he said.

For the first three months of the 2013-14 budget year, tax collections are down 3.4 percent.

Electrical power plants are converting from coal to cheaper, cleaner natural gas, and while the state collects a 5 percent severance tax on each source of energy, statewide coal sales last year were about $8 billion, while natural gas sales totaled only about $2.3 billion, McKown said.

Severance taxes account for about 11 percent of the state's general revenue budget, he said.

Also, natural gas production is much less labor-intensive, McKown said, pointing out that consumer sales taxes and personal income taxes combined account for 72 percent of the state budget.

"Coal miners make a lot of money, pay a lot of income taxes, and buy a lot of things," he said, outlining the impact of declining coal employment on the budget.

On a brighter note, McKown said, state government got through the 16-day federal government partial shutdown relatively unscathed.

"If that had gone on a couple of weeks longer, there would have definitely been some financial difficulties in state government," he told the interim committee on higher education.

West Virginia gets about $4.6 billion a year of federal funding -- about $500 million more than it generates from taxes.

Medicaid, the state-managed health-care plan for the poor, disabled and elderly, alone is a $3 billion-a-year program, with more than $2 billion funded by the federal government, he said.

The federal Medicaid contribution is about $200 million a month, and if the state had to make up that revenue, it would have quickly wiped out the $900 million the state has set aside in the emergency Rainy Day Fund, he said.

"We could have exhausted all the funds we have in a couple of months," McKown said.

The downside, he said, is that Congress didn't resolve the budget impasse last week, but merely postponed it for three months.

"We still have to face that in January. They just kicked the can down the road three months," he said.

Also, he said, there is no way to predict what impact the federal Affordable Care Act and the expansion of Medicaid eligibility to households earning 133 percent of the federal poverty level will have on the state economy.

"We just don't know how those are going to affect the economy. It's the big unknown," he said.